What are Exempt Wages? (2024)

FAQs

What are Exempt Wages? ›

Exempt wages are portions of an employee's income that aren't subject to federal, state, or local taxes. The reason these wages are shielded from tax withholdings could be due to an employee's tax-exempt status or how the income is being used.

Exempt employees are generally not subject to the FLSA regulations governing minimum wage and overtime pay. Rather, exempt employees are paid on a salary or fee basis, meaning they typically must receive their predetermined salary each workweek regardless of the quality or quantity of work performed.

So, how does one decide if an employee is exempt vs. non exempt? Pay rate, job duties and responsibilities are all key factors in determining if an employee is exempt or non-exempt, not the type of clothes they wear or their work environment.

California labor laws require most employers to follow certain rules⁠—⁠like paying overtime, tracking hours, or providing rest breaks. Some types of jobs, however, are exempt from these requirements. An exempt employee is someone whose job is not subject to one or more sets of wage and hour laws.

Employees perform exempt professional job duties if their work involves advanced, usually specialized, learning or credentials. Doctors, lawyers, and teachers fall under this category. Typically, a professionally exempt employee will hold a specialized academic degree in his or her field.

What does filing exempt on a W-4 mean? When you file as exempt from withholding with your employer for federal income tax withholding, you don't make any federal income tax payments during the year.

Salary Considerations

Exempt employees in California generally must earn a minimum monthly salary of no less than two times the state minimum wage for full time employment. Simply paying an employee a salary does not make them exempt, nor does it change any requirements for compliance with wage and hour laws.

Exempt employees must be paid on a salary basis, as discussed above. Nonexempt employees may be paid on a salary basis for a fixed number of hours or under the fluctuating workweek method. Nonexempt employees paid a salary must still receive overtime in accordance with federal and state laws.

Although there are a few exceptions, employees usually need to pass all three of the following tests to be deemed exempt: They must be paid at least $35,568 annually or $684 per week. They must be paid a salary not an hourly wage. They must perform exempt job duties.

The Department of Labor considers an exemption status if the Store Manager is the "highest ranking" employee in the store and if decisions are made on matters such as whom to interview and hire, whom to assign the new hires for training purposes, when to discipline employees, whom to assign certain responsibilities, ...

Is being an exempt employee a good thing? ›

Whether it's better to be exempt or non-exempt depends on individual circ*mstances and preferences. Some employees may prefer the stability of a set salary and benefits, while others may prefer the opportunity to earn more money through overtime pay.

In any workplace, there are two types of employees: exempt and nonexempt. Exempt employees are those who are exempt from minimum wage and overtime pay requirements. This is because exempt employees are paid a salary rather than an hourly wage, and they work in what are considered executive or professional jobs.

operations manager is an example of a typical exempt salaried employee. Salaried exempt employees are paid a fixed monthly amount regardless of the hours worked in a given period.

Examples of exempt wages include pre-tax contributions to a health or retirement plan, court-imposed wage garnishments, or income earned beyond a certain threshold of Social Security contributions.

Employees may be considered exempt if they are paid a salary that cannot be reduced because of the quality or quantity of their work, earn less than the minimum salary requirement, and primarily perform executive, administrative or professional duties (“duties” test).

Some jobs are classified as exempt by definition. For example, "outside sales" employees are exempt ("inside sales" employeesare nonexempt). For most employees, however, whether they are exempt or nonexempt depends on (a) how much they are paid, (b) how they are paid, and (c) what kind of work they do.

Exempt employees must meet the following requirements: Instead of being paid on an hourly basis, they are paid a wage. They get a monthly basic wage that is more than the FLSA standard, regardless of the number of hours worked in a week. The wages threshold for exempt employees changes every year.

Generally, non-exempt employees are paid an hourly rate and have variable schedules, and exempt employees work a “9-to-5” job and are paid a set salary.

Being tax-exempt means that some or all of a person's or business's income is free from federal, state or local tax. Tax-exempt organizations are typically charities or religious organizations recognized by the IRS. Internal Revenue Service. Exempt Organization Types. Accessed Mar 26, 2024.